as part of our
Back in April, I wrote favorably about
Molson Coors (
(see "Beer Stocks: Crack One Open"), noting that the brewer was
significantly cheaper than
Anheuser Busch InBev ($ BUD
) and SABMiller
and that it paid the best dividend of any major brewer. At
3.1%, its dividend yield at the time was nearly double that of
Anheuser Busch InBev.
Since then, Molson Coors is up a modest 10%, more or less in
line with the S&P 500. Meanwhile, BUD has rallied by more
But looking longer term, we see an even starker contrast.
Since the beginning of 2010, Molson Coors has trailed its "Big
Beer" peers by a wide margin. Anheuser Busch InBev, SABMiller
are up 66%, 50%, and 30%, respectively.
But Molson Coors?
TAP has been flatter than a three-week-old keg, actually showing
a slight loss over the past two years.
So, what gives? What explains the lack of investor
interest in Molson Coors?
It's really quite simple.
Molson Coors missed the party in emerging markets.
Prior to its June acquisition of Eastern European brewery
StarBev, Molson Coors had negligible exposure to emerging
markets. Its business was limited almost exclusively to North
America and the UK, where beer brewing is a slow-growth
business. And outside of its trendy Blue Moon brand, Molson
Coors had also largely missed out on the one promising growth
outlet for the North American market: upscale premium
The company found itself selling low-margin, mass-market beer to
an aging and shrinking North American and British market.
Molson Coors faced relentless competition from both Budweiser and
Miller at the mass-market level, and from innumerable up-and-coming
foreign and premium brands at the higher end. Not the sort of
scenario that would make investors thirsty for more.
Even after the StarBev merger, Molson Coors will only sell about
14% of its volumes outside of North America and the UK.
Meanwhile, take a look at BUD. Anheuser Busch InBev sells
more beer in Latin America (34% of volumes) than it does in North
America (32% of volumes). Overall, emerging markets make up
more than half of all beer sold.
And BUD isn't even the best positioned of the group.
Heineken is a long-term recommendation of the
Sizemore Investment Letter
precisely because of its exposure to emerging markets and
specifically to Africa, the next great growth market.
Heineken gets 21% of its profits from Africa already, and this
figure is set to skyrocket as African incomes rise and millions of
Africans join the ranks of the middle classes. Rival
SABMiller is also a major player in Africa, and particularly in
Heineken also made a major expansion into Southeast Asia this
year with its purchase of Asia Pacific Breweries.
So, where does all of this leave Molson Coors?
With the global beer market already well on its way to
consolidation, there are not a lot of attractive acquisition
targets left to snag, and those that do come up are not likely to
go cheaply. Realistically, Molson Coors will be primarily a
North American seller of suds for the foreseeable future.
bad. While the Echo Boomers-the large generation of
Americans in their 20s and very early 30s-do not slosh the stuff as
enthusiastically as previous generations (they tend to prefer
vodka-based mixed drinks), there are signs of life in the domestic
market. U.S. beer shipments are actually up this year, after
falling slightly for the past three years in a row.
Mass-market brewing may no longer be a growth business in the
United States and Canada, but it is generally pretty stable.
We don't have to worry about any of the major brewers facing
financial distress any time soon.
Looking at Molson Coors' financials, I continue to believe the
stock has value as a cheap income stock. TAP trades for just
11 times expected 2013 earnings and pays a dividend of 2.9
percent-the highest of all major beer brewers. This isn't a
"home run" stock, but it's one that is priced to offer decent
returns going forward.
Bottom line: If you want growth, Heineken remains my favorite
brewer. But I consider Molson Coors a worthwhile choice for a
long-term dividend-focused portfolio.
This article first appeared on InvestorPlace.
Sizemore Capital is long HINKY.
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